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Item type:Publication, Excessive bank risk-taking in an infinite horizon economy(Elsevier B.V., 2024-08-01)We develop a dynamic framework to study banks’ incentives to take excessive risk in an emerging economy, where bank default probability and excess bank risk-taking are modeled endogenously. We calibrate it for the 1998 Peruvian economy. We find that the infinite-period feature amplifies banks’ incentives to take excessive risk. When we simulate the sudden stop that hit Peru in 1998, the model accurately predicts the substantial short-term rise in the non-performing loans ratio through the rise of the bank default probability. - Some of the metrics are blocked by yourconsent settings
Item type:Publication, Financing structure and heterogeneous effects of monetary policy(Elsevier BV, 2025-01-01)This work documents the existence of a heterogeneous banking channel in Peru, where monetary policy actions have a differentiated impact on the credit market, which depends on the level of leverage of financial institutions. Using financial entity-level data, we demonstrate that this external financing component primarily determines a heterogeneous monetary policy lending channel. To show the causal effects of this financing structure channel, we use microdata at the branch level, together with an econometric strategy that focuses on local credit markets. The dependence on external funding at the branch level determines the heterogeneity in the credit channel, for the monetary policy transmission, with two important margins: an amplifying effect and another attenuating effect, associated with a lower or higher level of leverage, or with a greater or lesser need for external funding, respectively. To provide a theoretical underpinning for our empirical findings, we develop a formal model that demonstrates that banks' financing structure amplifies or attenuates the influence of monetary policy.1